Posted 7:03 a.m.
The Emini reversed up from the 60 minute moving average and rallied above Friday’s bear low, but the rally contained 3 dojis, and the buy signal bar was weak. This means that the rally was likely just a bear leg in a trading range. The selloff had a bull doji sell signal bar, which increases the chances of a trading range. Although the odds are that today will trade below yesterday’s low, this is a trading range open, and it increases the chances of a lot of trading range price action today. The Emini might go sideways for an hour or two before deciding on the direction of its 1st swing.
The odds are that the Emini will correct sideways to down for a day or two, and that the pullback began at yesterday’s high. However, this early price action is more typical of a trading range than a bear trend. Until there is a strong breakout up or down, traders will continue to scalp. If there is a trading range, bulls will look to buy above a bull bar near the low for a swing up, and bears will look to sell below a bear reversal bar near the top and near the moving average for a swing down. Until then, traders will mostly scalp.
Although today can still be a trend day up or down, the odds favor mostly trading range price action.
Pre-Open Market Analysis
S&P 500 Emini: Emini price action favors short day trades today
The daily chart of the Emini is overbought. It broke above an expanding triangle top, which was also a monthly buy signal bar, 4 days ago. Each of the the 3 last days in the 4 day bull breakout has a body that is smaller than the day before. This is a loss of momentum. The Emini is also testing 2,000 and the bottom of the October to December trading range, which is resistance. As I said on Friday, the odds are that today, Monday, will either have a bear body and tomorrow will pull back below today, or today will pull back below Friday’s low.
The March 1 bull breakout was a big bar, and a low probability event. This means that many scale in bears are trapped and will buy back of their losing shorts on the 1st pullback. Bulls see the strong momentum, and will also buy the 1st pullback. Both knows that when a low probability event has strong momentum, there is a 70% chance of a 2nd leg up.
However, as I wrote over the weekend, that 2nd leg up would create a possible Low 4 sell setup, like in October. If so, the reversal down has a 70% chance of lasting at least 10 days and having at least 2 legs, like in October.
The Emini had a strong reversal down in the 2nd half of Friday. It was strong enough so that there is a 60% chance of some kind of measured move down today or tomorrow. It is down 9 points in the Globex session. Whether or not it opens below Friday’s low, there is a 70% chance that it will pull back for a day or two today or tomorrow.
The 60 minute chart has a wedge top. There is a 75% chance that it will trade down for TBTL Ten Bars Two Legs, which means about a day and a half. There is a 25% chance that the bulls will get a strong breakout above the wedge bull channel.
Online day traders will look for sell setups today. If there is a strong bear breakout, they will sell it. If Friday’s bear breakout is followed by a broad bear channel, they will sell rallies.
A swing down on the 60 minute chart has bounces on the 5 minute chart, and those bounces are often big enough to swing trade on the 5 minute chart. Those who trade the markets for a living will take any good buy setup that develops, but will more aggressive with their shorts today.
Forex: Best trading strategies
I wrote several times last week that the EURUSD was likely to have a 200 pip rally. It achieved that goal on Friday and tested near the top of the February 26 sell climax.
The February sell off was climactic. There is a 70% chance that it will be followed by a trading range for a couple of weeks, in part because it is stalling in the December/January trading range. A trading range has bull and bear legs. Friday was the 3rd day in a bull leg.
The 60 minute chart had a bear breakout overnight and has pulled back into the March 3 trading range. The selloff was strong enough so that the 60 minute chart will probably trade more sideways to down today. The pattern is small, and the measured move target from the bear breakout is only 30 pips below the current price. The next support is the bottom of the March 4 strong bull reversal at around 1.0900.
Will it go up or down today? When traders can make a good argument for both sides, the market is in a trading range. The odds are that it will test down to around 1.0900 today or tomorrow ant the bounce. Traders never know in advance where the exact top and bottom of legs in a trading range will be, but they are confident that a trend is unlikely. This means that they will buy selloffs near the possible bottom of the range, sell rallies near support, many will scale in, and most will take quick profits, betting against a trend.
The 5 minute chart has been in a 30 pip range in the European session. When the range is that tight, it is difficult even for scalpers to make money. Many of the day traders who are trading the 5 minute chart will use limit orders and scalp for 10 pips until there is a strong breakout up or down.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a weak rally above yesterday’s high, and then a reversal back down again to the 60 minute moving average where the buyers returned.
The daily chart is overbought. There will probably be sellers above today’s high tomorrow. The odds are that either tomorrow will trade below today’s low, or Wednesday will trade below tomorrow’s low.
However, as you can read in my blog over the weekend, the odds are that the pullback will be bought. A new high then might set up a Low 4 (actually a Low 5) sell signal by the end of the week or early next week.
See the weekly update for a discussion of the price action on the weekly candlestick chart and for what to expect going into next week.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room, and a 2 day free trial is available.
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Intraday Market Update page.
Thanks Al.
Hello Al,
If it is correct (is it?) that afternoon breakout attempts of intra-day & recent-day highs and lows have worse odds than attempts earlier in the day, do you have a sense of ballpark probability about this, and/or breakout-specific context that is specific to the afternoon ?
Best, Charles
I think is has much more to do with the context and the strength of the moves than the time of day. I never worry about the time if the move is strong. However, strong moves happen slightly more often early in the day.